Nokia Oyj (NOK.US) is positioning itself to benefit from the artificial intelligence boom by streamlining its operations and focusing on network infrastructure that connects AI data centers. CEO Pekka Lundmark stated ahead of the company's Capital Markets Day that this strategic shift is expected to deliver double-digit operating profit growth in the coming years. The company announced a target of €2.7 billion to €3.2 billion in annual operating profit by 2028.

Nokia's shares fell as much as 6.3% on the Helsinki Stock Exchange, marking their fifth consecutive day of decline. While the stock surged last month following Nvidia's $1 billion investment in Nokia, concerns about an AI bubble have since erased some of those gains. In pre-market trading, Nokia's U.S.-listed shares were down 5.88%.

The Finnish company plans to divest underperforming business units and restructure its four current divisions into two main segments: Mobile Networks and Network Infrastructure. The Network Infrastructure division will focus on Nokia's optical networking business, providing fiber connections capable of handling the massive data loads required for AI workloads. The Mobile Networks division will encompass Nokia's core business of providing backbone equipment for mobile communications.

Lundmark emphasized that this reorganization, effective January 2025, will align the company with emerging opportunities. "We will double down on being a focused connectivity infrastructure provider—you can't win in connectivity without being at the forefront of AI," he said.

Once Europe's most valuable company and an iconic mobile phone brand, Nokia has struggled in recent years to convince investors about growth prospects in its core mobile networks business. Now, the company aims to leverage the AI boom to support the physical infrastructure underpinning this trillion-dollar technology. AI and cloud services accounted for 6% of net sales in Q3, with executives identifying this as Nokia's "biggest opportunity."

Nokia's $1 billion partnership with Nvidia gives the chipmaker a 3% stake in the company. Last year, Nokia acquired Infinera Corp. to expand its AI data center networking products and appointed Finland's former U.S. ambassador to promote defense communications services to governments.

Analysts view Nokia's restructuring around Network Infrastructure and Mobile Networks as addressing lingering market concerns about its wireless access business while creating new growth drivers. The 2028 operating profit target aligns with market consensus (€2.9 billion), with M&A synergies and network revenue growth expected to contribute, though mobile business economies of scale will be crucial.

The AI-focused Network Infrastructure division, led by David Hed, is projected to grow through sales of optical networking equipment to tech firms. Lundmark noted continued growth in IP routing and switching, with customers needing fiber access network upgrades.

While describing Mobile Networks as currently "flat," Lundmark said it would be repositioned around AI. Starting January 1, this division will absorb Nokia's profitable patent business (Nokia Technologies) and its Cloud and Network Services unit. Division head Raghav Sahgal will become Chief Customer Officer, with Lundmark temporarily leading Mobile Networks following Tommi Uitto's departure.

"Overall, this business hasn't delivered satisfactory returns—for us or certainly for shareholders," Lundmark acknowledged. "It's great core technology but not yet a great business. We need to build better businesses in our portfolio, not necessarily bigger ones."

Lundmark noted challenges in Nokia's 5G/6G wireless networks, where Nvidia chips are being deployed for enhancement. The defense business will operate independently as an "incubator," utilizing existing resources but not expected to match other divisions' revenue. Nokia plans to divest four smaller underperforming assets, including its fixed wireless access 5G WiFi business and microwave operations connecting base stations to core networks.